The High Cost of Living in Toronto forces Both Parents to work and forces their Children into Daycare

Posted by PITHOCRATES - November 24th, 2013

Week in Review

Once upon a time we worked so we could raise our families.  Now we find someone to raise our children so we can work (see Daycare in Toronto: ‘Parent summit’ participants tell of vastly different experiences by Marco Chown Oved posted 11/22/2013 on the star).

Diana Tarango is worried. Her 4-year-old daughter is in all-day kindergarten, but because she can’t find before- and after-school care, she can’t go back to work.

Perry Wong and Nalini Nankoo are frustrated. They have been looking for a daycare space for their 2-year-old son and have put down non-refundable deposits to get on the waiting list at a half-dozen daycares. They can’t afford to keep wasting money, and their son still doesn’t have a space.

Cynthia Zhu and Kenny Ji couldn’t be happier. They’ve been in Canada for less than a year and they’ve got both their kids in subsidized daycare spots near their home.

These stories show how ineffective our patchwork daycare system is, said Councillor Shelley Carroll.

“Child care is an issue that affects us all in different ways,” she said. “That’s why we need these meetings and why we need to get people talking across generations, too.”

Parents, grandparents and even childless adults are all affected by the high cost of daycare, said Carroll, and a better system won’t just be better for families with young children, it will be good for the economy as well.

There are 57,000 daycare spaces in Toronto, only enough for 21 per cent of the city’s children under 12. The city subsidizes 24,264 of those spaces, which only covers about 28 per cent of children in low-income families.

Making matters worse, the wait-list for a subsidized spot is more than 18,500 people long…

Tarango, newly arrived from Hungary, looked into putting her younger son into daycare, but can’t believe how much it would cost.

“I was amazed when I asked the price: $1,500 per kid (per month)!” she said. “In Hungary, after one and a half years, everything is free. The daycare even provides food free, too.”

If 21% of the total number of children under 12 equals 57,000 then the total number of children under 12 in Toronto equals 271,429 (57,000/0.21).  The total number of children who need daycare is 75,500 (57,000+18,500).   Subtracting this number from the total number of children under 12 equals 195,929 (271,429-75,500).  So the percentage of children under 12 who are raised in Toronto without daycare equals 72.2% (195,929/271,429).  In other words, the vast majority of children of daycare age DON’T use daycare.  Which is a good thing.  And one would hope that’s because they have a stay-at-home parent raising their child in a loving household.  Instead of dumping these inconvenient pains in the ass at daycare so they can do something more rewarding than parenting.

There may be many reasons why parents need daycare for their children.  Single mothers may need daycare so they can work.  There could be a married parent that prizes a career over raising children and prefers to work instead of being a stay-at-home parent.  But perhaps the greatest reason is that parents can’t raise a family on a single income because of high taxes.  Some of which are going to subsidize daycare at $1,500 per child per month.  Which creates a death spiral for daycare.

Daycare isn’t cheap.  So it takes a lot of tax dollars to subsidize.  The high unmet demand for daycare spaces requires more tax dollars to subsidize.  Which require higher tax rates.  Leaving people with less take-home pay.  Making it more difficult for parents to raise a family on a single income.  Requiring more two-income households.  And a greater demand for daycare.  Requiring more tax dollars.  And higher tax rates.  Leaving families with less take-home pay.  And so on.

The best way to provide for these children?  Tax cuts.  Allowing families to keep more of their take-home pay.  So much that they can raise a family on a single income.  Like they used to do.  Before the welfare state.  That provided cradle-to–grave benefits.  Which, ironically, leaves working people with less.  And forces their children to spend more time growing up with strangers.  And less time with their parents.

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The Federal Government taxes away about Half of Every Dollar the Middle Class Earns

Posted by PITHOCRATES - August 19th, 2012

Week in Review

Thanks to withholding tax people don’t fully appreciate how high their taxes are.  They know they’re high.  So high that gross pay means nothing to them.  Workers only speak of ‘net’ pay.  Or ‘take home’ pay.  The money they actually get.  Not that strange fictitious ‘gross’ pay on their paycheck stub.  Whatever that is.  And what is gross pay?  Their pay.  It’s their money.  And they would have had it when they cashed their paychecks if their employers didn’t withhold it so they could give it to the government.  And why does the government use the withholding tax to take our money?  Because if we had to write a check at the end of the year for our full tax amount there would probably be a nationwide tax revolt.  Which is why the taxing authorities take that money before it gets into our hands.  Because once it is in our hands people may be less willing to hand it over to the taxman.  Which is probably why the Founding Fathers didn’t include any withholding taxes in the Constitution.  They did not want to make it easy for the government to take our money.

So how high are the taxes on the middle class?  Pretty high (see Government Will Take Almost Half Your Paycheck in 2013 by Patrick Tyrrell posted 8/13/2012 on The Foundry).

A middle-class taxpayer’s income is subject to a 25 percent federal income tax. Then there is the federal Social Security and Medicare payroll tax of 13.3 percent in 2012—5.65 percent of that is removed from the employee’s paycheck, and the remaining 7.65 percent is paid by the employer. (In reality, the employee pays the entire 13.3 percent, because the employer’s portion of the tax does not affect the cost of labor: The employer would pay the employee 7.65 percent more if there were no employer’s portion of the payroll tax.)

So the 25 percent federal income tax plus 13.3 Social Security and Medicare payroll taxes equals 38.3 percent going to federal taxes in 2012.

And then there are state taxes. According to the Tax Foundation, the average state’s income tax rate for the middle-class taxpayer is 4.82 percent, which brings the total to 43.12 percent in federal and state taxes.

In Billy Joe’s Movin’ Out (Anthony’s Song) he says, “You can pay Uncle Sam with the overtime.  Is that all you get for your money?”  The point being is this.  Yes you can give up your Saturday and work some overtime.  But is it really worth it when you can only keep about $0.57 of each additional dollar you earn?  Not really.  Which is why a lot of people who work with their hands will do ‘side work’ for cash under the table.  So they can keep every penny of every dollar they earn.

Or some will work some hours serving tables in a restaurant.  For a little extra spending cash.  I worked with a lady who did.  A devout liberal Democrat.  And part of the middle class.  I asked her if she reported all her tips so she could pay her fair share of taxes on those earnings.  Even though she was a steadfast liberal Democrat voter who always voted ‘yes’ to increase tax rates on others she said the government had already taxed her enough.  So that those supplemental earnings should be hers free and clear.  Of course, that’s not how the tax law works.  You make more you pay more.  She wouldn’t give me a definitive answer on whether she reported all her tips as income.  But it was interesting to hear her say that high tax rates were fair.  As long as she didn’t have to pay them.  Well, her taxes will be going up.  Fair or not.

And it’s going higher, thanks to the nearly $500 billion in tax increases for 2013 that some have called Taxmageddon. In January of next year, the federal income tax rate for middle-class taxpayers is scheduled to rise from 25 percent to 28 percent, and the payroll tax is scheduled to rise from 13.3 percent to 15.3 percent. This drives the marginal tax rate based on the aforementioned three taxes to 48.12 percent. Add in state and local property, corporate, excise, and other state and local taxes, and the percentage of each additional dollar that is taxed hovers around 50 percent.

When half of each additional dollar earned is taxed away, taxpayers experience a disincentive to start businesses or expand existing ones. This leads to fewer jobs being created.

It’s like we divorced our government in the state of California.  And we lost half of everything we earn to a spiteful ex.  Half!  Yeah, that really encourages you to work hard and build your business and hire more people.  So you can deal with the labyrinth of government regulatory compliance.  Lawsuits.  Insurances.  Drug testing.  Sexual harassment training.  All the while hearing the government tell you, “You didn’t build that.”  That you somehow won life’s lottery to riches.  And that you’re greedy for not wanting to pay more taxes.  And for what?  To keep half of every dollar you earn?  It would be a lot easier just to lay off all your workers. Shut down your business.  And go to work for someone else.  And let them deal with these headaches.  Like they did in the Roman Empire as it was collapsing under the weight of her welfare state.  Until the Romans passed laws forbidding people from quitting the work they were doing.

The sad thing is that so many people will vote to perpetuate this binge of taxation.  While they themselves will do everything within their power to avoid paying their own ‘fair share’ of taxes.  While demanding the rich pay more.  Even though the top 10% are already paying 70% of all federal taxes.  The truth is that the rich can’t pay these taxes.  There just aren’t enough of them.  Even if you take everything they earn.  Which leaves the middle class to make up this tax shortfall.  So they take half of everything they earn.  And will continue to take more as their spending continues to grow.  And if people begin to quit the hard jobs because they can’t keep their earnings perhaps the government will step in like the Romans did.  And force people to be doctors.  To run pharmaceutical companies.  To build the next new technology.  It’s happened before to an empire that began as a limited republican government.  So it can probably happen again.  Besides who would have ever thought that the country borne out of a tax rebellion would one day take half of every dollar a middle class worker made?  No one would have seen this coming.  And yet here we are.  Paying half of every dollar we earn to Uncle Sam.

The Founding Fathers would be flabbergasted.  Upset.  And saddened.  To see what had become of their beloved republic.  And their experiment in limited self-government.

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Sixteenth Amendment, Revenue Act of 1913, Progressive Tax, Marginal Tax Rate, Tax Shelter, Tax Cuts and Decade of Greed

Posted by PITHOCRATES - July 10th, 2012

History 101

Americans find Taxes Repugnant and have a Long History of Making this Repugnance Known

American independence began with a tax revolt.  The ratification of the U.S. Constitution happened only with safeguards against the new federal government from growing too powerful.  And great efforts went to limiting the amount of money it could spend.  For a long time all federal tax revenue came from import tariffs.  Then from sales of federal lands as the population moved west.  It took a civil war for us to impose an income tax.  Our first income tax was 3% on incomes over $800 (or about $20,000 today).  The first income tax was a flat tax.  They passed this income tax to pay for the war.  They repealed the income tax following the war.  Americans wouldn’t see another federal income tax until 1913 when we ratified the Sixteenth Amendment.  And President Woodrow Wilson signed into law the Revenue Act of 1913.

Woodrow Wilson was a progressive.  The precursor to today’s liberals.  Who thought beyond the limited government of our Founding Fathers.  They wanted to expand government.  To make it a part of our everyday life.  Where the brilliant progressive politicians would make better decisions for us than we ever could.  And their changing of society included the funding of the federal government.  For their income tax was a progressive tax.  Everyone paid a flat tax of 1% on income of $3,000 or more.  About $66,100 today.  Then the progressive taxes came into play.   Adding another percentage to the income tax rate for increasing amounts of income.  The thresholds for these increases were as follows: $20,000 (roughly $440,400 today), $50,000 ($1,101,000 today), $75,000 ($1,651,600), $100,000 ($2,202,100), $250,000 ($5,505,300) and $500,000 ($11,010,700).  The top marginal tax rate on the super rich (earning $11,010,700) was 7%.

Our second income tax was quite controversial.  A lot of people hated it.  For Americans find taxes repugnant.  And have a long history of making this repugnance well known.  But thanks to the American Civil War a generation of men was lost.  And a generation of boys grew up without fathers.  Tended on by doting mothers.  Smothering them with love and affection.  And these boys grew up without knowing the manly hardships of life.  And they entered politics.  Becoming those early progressives.  Who wanted to change the government into a great doting mother.  And now they could.  For they had their income tax.

Few paid the Confiscatory Tax Rates of the Seventies by Hiding their Income in Tax Shelters

The rich paid our first federal income taxes after the Revenue Act of 1913.  And these were very small percentages we had them pay.  Back then the top marginal tax rate was lower than our lowest income tax rate today.  Think about that.  The richest of the rich paid only 7% of their income ($11,010,700 or more today) in federal income taxes.  While today single people earning the lowest bracket of taxable income (from $0 to $8,700) pay 10% of their income in federal income taxes.  Clearly the growth of government exploded thanks to the Sixteenth Amendment.  Much as our Founding Fathers feared it would if they had too much money to spend.

Of course, this is ancient history.  Few know about this today.  For few could even tell you why we fought for our independence.  Or even who we fought for our independence from.  (We fought for our independence from Great Britain because of their policies to tax us despite our having no representation in Parliament.  That’s where the phrase taxation without representation came from).  Today high taxes are sadly just an accepted part of life.  In fact, we have referred to our paychecks as take-home pay.  Our net pay.  Because gross pay is a myth.  No one sees their gross pay.  About a third or more of that disappears in withholding taxes.  So gross pay is a meaningless expression for us today.  (It wasn’t before the Sixteenth Amendment or before the progressives came to power).  Something that we sadly accept.  And we now fund our lives on the take-home pay the government allows us to keep.  All the while accepting these high tax rates.

Government spending took off in the Sixties and the Seventies.  As did our taxes.  If we had once thought that a 7% tax on incomes of $11,010,700 or more was an outrage, we didn’t see anything yet.  In 1978 the top marginal tax rate was 70% on incomes of $351,712 or more.  And there were 25 marginal tax rates.  As shown here adjusted for inflation (sources: Tax Rates, Tax Receipts, and Celebrity Incomes).

 In this example we calculated the average of some top celebrities.  And the top celebrities on average earned about $30,000,000 in 2010.  Using the 1978 tax brackets they would have owed $20,936,506 in federal income taxes.  Or approximately 69.8% of their total income.  Which is pretty much equal to the top marginal tax rate.  Of course, few paid these confiscatory tax rates.  They hid their income as best as they could in the Seventies.  In tax shelters.  And you know they did because despite these confiscatory tax rates the federal government still ran budget deficits.  Having to print money to pay for their explosion in government spending. 

The Low Tax Rates of the Eighties created so much Economic Activity the Opposition called it the Decade of Greed

The heyday of Keynesian economics was in the Seventies.  After Richard Nixon decoupled the dollar from gold the Keynesians were free to print money to stimulate the economy.  Which was their answer to ending a recession.  Stimulus spending.  Have the government print money to create economic activity that wasn’t happening in the private sector.  Their policy tool to end a recession was inflation.  By pouring money into the economy people would borrow it and buy cars and houses and furniture.  And everything else under the sun.  Creating a surge of economic activity.  And creating jobs in the process as businesses must hire new workers to meet that government stimulated demand.  With the dollar decoupled from the ‘cross of gold’ the Keynesians were finally able to prove their mettle.  And solve all the country’s economic problems.  It was the dawn of a brave new world.

And that world sucked.  For the implementation of Keynesian economic policy proved those policies did not work.  Instead of replacing high unemployment with inflation they just added high inflation to the high unemployment.  Something that was impossible to happen in Keynesian textbooks.  But it happened.  Stagnant economic activity.  And inflation.  What we called stagflation.  We added the unemployment rate to the inflation rate to come up with a new economic indicator.  The misery index.  The economy was so miserable during Jimmy Carter’s 4 years in office that he lost in a landslide to Ronald Reagan.  Who was a proponent not of Keynesian economics but of the Austrian school.  Or supply side economics.   And the Austrians believed in low tax rates.  For low tax rates would stimulate economic activity.  And the greater amount of economic activity would generate a greater amount of tax revenue even at lower tax rates.  Let’s look at that same celebrity paying taxes a decade later under Ronald Reagan.

 Much simpler.  And more in keeping with the Founding Fathers.  Instead of paying 70% of their earnings in federal income taxes they will only pay 28% (again, equal to the top marginal tax rate.  Which is pretty much the only tax rate the rich pay).  That’s still a lot of money to give to the federal government.  But it’s so much smaller that in many cases it was cheaper and easier to pay Uncle Sam than trying to hide that income.  So economic activity took off in the Eighties.  It was so great that the opposition called it the Decade of Greed.  Out of sour grapes because their policies could never produce anything like it.  But what about tax revenue?  Those on the Left say this economic activity came at a price.  Exploding deficits.  Well, the deficits did grow.  But it wasn’t because of the cuts in the tax rates.

Higher Tax Rates do not Necessarily Increase Tax Revenue 

In 1978 total tax revenue was $1,113.6 billion.  In 1988 total tax revenue was $1,421.1 billion.  So Reagan’s cuts in the tax rates produced $307.5 billion more in tax revenue.  An increase of about 27.6%.  Dropping the top marginal tax rate from 70% to 28% actually increased tax revenue.  So the cut in tax rates did not cause the deficits.  It wasn’t a revenue problem.  Revenue went up.  Spending just increased more.  And it was this excessive government spending that caused the deficits.  Not the tax cuts. 

The lesson here is that higher tax rates do not necessarily increase tax revenue.  Because changes in tax rates changes behavior.  Higher tax rates discourage people from investing in businesses.  They discourage businesses from expanding.  Or hiring new workers.  Higher tax rates may decrease the opportunity costs for hiding income.  The cost and inconvenience of hiding income in tax shelters and offshore accounts may become less that the cost of paying higher taxes.  Like it was during the Seventies.  Where despite confiscatory tax rates the government could not generate enough tax revenue to meet their spending obligations.

Income tax rates grew from a very small percentage on only the largest of incomes to high tax rates on very modest incomes.  And yet our deficits have never been larger.  Proving that our tax rates are either too high and dampen economic activity (as well as encouraging people to avoid paying their taxes).  Or that government spending has just grown too large.  More than likely it’s a combination of the two.  A fact that would shock and dismay the Founding Fathers were they alive to see what we did with the republic they gave us.

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